Budget 2020: Changes to Entrepreneurs’ Relief looking likely

Posted 6th February 2020

In the run up to Budget 2020, we asked our MHA Moore and Smalley tax experts to preview the first big moment of Rishi Sunak’s chancellorship. In part one, tax partner Tony Medcalf, shares his thoughts on what changes we might expect.

More
than anything else, I see this being a budget for big spending and infrastructure
announcements. The government has an opportunity to take advantage of historic
low interest rates to borrow money to invest in infrastructure projects,
particularly in the North.

There
are three main ways for a government to generate more revenue – borrowing,
cutting costs, and taxation. A new government with a large majority isn’t going
to cut costs unless it absolutely has to, and it has already ruled out any
increases to the main rates of tax.

Therefore,
I think we’re going to see a mix of borrowing and stealth taxes, because if you
can’t raise taxes dramatically you’ve got to increase revenue through more
subtle tax changes.

I
think corporation tax will stay at 19 per cent as the prime minister seemed to
rule out lowering it to the previously scheduled 17 per cent during a speech at
the CBI conference during last year’s election campaign.

Mr
Johnson’s pledge to spend the £6bn saving on public services also seems to rule
out the possibility of corporate tax rates falling as low as the 15 per cent
mooted during the Cameron / Osborne years.

I
can’t see much change to stamp duty as government will be expecting a bounce in
economic activity, and more confidence in the housing market, which would
reduce the need for a rate change.

We are
almost certain to see changes to Entrepreneur’s Relief (the 10% rate of Capital
Gains Tax) that have been mooted previously.

This
might be lowering the lifetime limit from £10m, or they might look to make the
qualifying period longer, for example changing it from two years to five years.
This would see us going back toward the old model of taper relied where the
longer you own an asset, the less tax you pay.

Alternatively,
they may increase the percentage of share ownership required to qualify for the
relief. It’s unclear whether these changes would come in immediately after
March 11, or whether there would be a ‘notice period’.

It’s
true that new governments usually look to make their most dramatic changes
early on, so businesses need to be ready for anything.

That
said I think this budget is going to be used more to sell the new government’s
vision, and I expect to see the chancellor talking about prosperity,
investment, confidence and uniting the country.

What
the prime minister and the chancellor will really be hoping for here is a new
government bounce that may allow them to increase revenue through the economy
performing better, rather than them having to do anything too radical.

Click here to read the next installment of our four-part Budget 2020 preview.

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